UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 38510 / April 15, 1997
SECURITIES ACT OF 1933
Release No. 7415 / April 15, 1997
INVESTMENT ADVISERS ACT OF 1940
Release No. 1629 / April 15, 1997
INVESTMENT COMPANY ACT OF 1940
Release No. 22617 / April 15, 1997
ADMINISTRATIVE PROCEEDING
File No. 3-9297
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:
In the Matter of : ORDER INSTITUTING PROCEEDINGS,
: MAKING FINDINGS, AND IMPOSING
: REMEDIAL SANCTIONS AND ORDER TO
: CEASE AND DESIST PURSUANT TO SECTIONS
: 15(b)(6), 19(h)(3) AND 21C OF THE
: SECURITIES EXCHANGE ACT OF 1934,
Donald W. Spinks, : SECTION 8A OF THE SECURITIES ACT OF
and : 1933, SECTIONS 203(e) and 203(f) OF
CDS Financial Services: THE INVESTMENT ADVISERS ACT OF 1940
: AND SECTION 9(b) OF THE INVESTMENT
: COMPANY ACT OF 1940
Respondents. :
:
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I.
The Securities and Exchange Commission ("Commission") deems
it appropriate and in the public interest that public proceedings
be, and hereby are, instituted pursuant to Sections 15(b)(6),
19(h)(3) and 21C of the Securities Exchange Act of 1934
("Exchange Act"), Section 8A of the Securities Act of 1933
("Securities Act"), Sections 203(e) and 203(f) of the Investment
Advisers Act of 1940 ("Advisers Act") and Section 9(b) of the
Investment Company Act of 1940 ("Investment Company Act") against
Donald Spinks ("Spinks") and CDS Financial Services ("CDS").
In anticipation of the institution of these proceedings,
Spinks and CDS have submitted an Offer of Settlement to the
Commission, which the Commission has determined to accept.
Solely for the purposes of this proceeding and any other
proceeding brought by or on behalf of the Commission or in which
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the Commission is a party, prior to a hearing pursuant to the
Commission's Rules of Practice, 17 C.F.R. 201.1 et seq., and,
without admitting or denying the findings contained herein,
except those contained in paragraphs II. A. and B., which are
admitted, Spinks and CDS consent to the issuance of this Order
Instituting Proceedings, Making Findings, and Imposing Remedial
Sanctions and Order to Cease and Desist ("Order"), and to the
entry of the findings and the Order set forth below.
Accordingly, IT IS ORDERED that administrative proceedings
pursuant to Sections 15(b)(6) and 19(h)(3) of the Exchange Act,
Sections 203 (e) and 203 (f) of the Advisers Act and Section 9(b)
of the Investment Company Act, and cease-and-desist proceedings
pursuant to Section 8A of the Securities Act and Section 21C of
the Exchange Act be, and hereby are, instituted against Donald W.
Spinks and CDS Financial Services.
II.
On the basis of this Order and the Offer submitted by Spinks
and CDS the Commission finds-[1]- that:
A. Spinks is a resident of Mansfield, Texas, and was a
registered representative associated with various broker-dealers
registered with the Commission from 1990 until June 1995. From
December 1990 through June 1995, Spinks was a registered
representative employed by Dominion Capital Corporation
("Dominion"), a broker-dealer registered with the Commission,
with offices in Texas.
B. Since October 26, 1993, CDS Financial Services has been
registered with the Commission as an Investment Adviser. Spinks
was a partner and control person of CDS until February 1994, when
CDS ceased operations.
C. During the period from at least July 1992 until June
1995, Spinks willfully violated Section 17(a) of the Securities
Act and Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, as more fully described in paragraphs D., E., F. and
G. below.
D. Between July 1992 and June 1995, Spinks offered and
sold to his customers various high-risk or speculative
securities, including interests in limited partnerships, limited
liability corporations ("LLCs"), and notes and debentures.
Spinks sold these securities to customers without regard for
---------FOOTNOTES----------
-[1]- The findings herein are made pursuant to Donald W.
Spinks' and CDS' Offer of Settlement and are not
binding on any other person or entity named as a
respondent in this or any other proceeding.
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their investment needs or objectives. In these offers and sales,
Spinks misrepresented the risky, speculative nature of these
investments to his customers. He also failed to consistently
provide offering memoranda to customers, which would have
disclosed these risks. Spinks also evaded the financial
suitability requirements of the offerings by submitting false
statements of net worth for customers who did not otherwise
qualify to purchase these interests, without customers'
knowledge.
E. In many instances, Spinks made multiple sales of these
high-risk, speculative securities to customers, causing high
concentrations of risky, illiquid investments in these customers'
portfolios. Several of Spinks' customers invested in excess of
50% of their net worth in a combination of interests in LLCs,
notes, debentures and limited partnerships.
F. Between February and April 1994, Spinks offered and
sold customers limited partnership units in Options Trading
Management Ltd. I (Options I), a limited partnership Spinks
formed to trade options based upon a computer trading program.
Spinks concealed significant trading losses for Options I trading
by sending investors false quarterly reports which claimed that
the trading was profitable. Spinks also failed to disclose that
commissions paid to Dominion and himself during the period
Options I operated totaled 66% of the aggregate investors'
contribution.
G. Between September and December 1994, Spinks offered and
sold customers limited partnership units in Options Trading
Management Ltd. II (Options II), a limited partnership formed by
colleague of Spinks who was also a registered representative of
Dominion. Options II paralleled Options I in all significant
respects. Spinks solicited Options I investors who had been
provided with the false Options I quarterly reports to invest in
Options II, without disclosing that Options I had suffered a
nearly complete loss of investors' contributions.
H. Respondents Spinks and CDS have submitted sworn
financial statements and other evidence and have asserted their
financial inability to pay disgorgement plus prejudgment interest
and civil penalties. The Commission has reviewed the sworn
financial statements and other evidence provided by Respondents
and has determined that Respondent Spinks does not have the
financial ability to pay disgorgement of $374,356.00, with
prejudgment interest thereon in the amount of $123,831.95, and
civil penalties.
III.
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In view of the foregoing, the Commission deems it
appropriate and in the public interest to impose the sanctions
that are set forth in the Offer submitted by Spinks and CDS.
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Accordingly, IT IS ORDERED that:
A. Spinks be, and hereby is, barred from association with
any broker, dealer, municipal securities dealer, investment
adviser or investment company; and
B. Spinks shall cease and desist from committing or
causing any violations of, and any future violation of, Section
17(a) of the Securities Act, Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder; and
C. The registration of CDS Financial Services as an
investment adviser is hereby revoked; and
D. Spinks shall pay disgorgement in the amount of
$374,356.00, with prejudgment interest thereon in the amount of
$123,831.95, but that payment of such amount be waived as to
Spinks, and civil penalties shall not be imposed against Spinks,
based upon Respondents' demonstrated financial inability to pay;
and
E. The Division of Enforcement may, at any time following
the entry of this Order, petition the Commission to: (1) reopen
this matter to consider whether Respondents provided inaccurate
and incomplete financial information at the time such
representations were made; (2) determine the amount of
disgorgement, pre-judgement interest and civil penalty to be
imposed; and (3) seek any additional remedies that the Commission
would be authorized to impose in this proceeding if Respondents'
offer of settlement had not been accepted. No other issues shall
be considered in connection with this petition other than whether
the financial information provided by Respondents was fraudulent,
misleading, inaccurate or incomplete in any material respect, the
amount of disgorgement, pre-judgment interest and civil penalty
to be imposed and whether any additional remedies should be
imposed. Respondents may not, by way of defense to any such
petition, contest the findings in this Order or the Commission's
authority to impose any additional remedies that were available
in the original proceeding.
By the Commission.
Jonathan G. Katz
Secretary